The five major housing markets in Australia remain severely unaffordable, even by global standards.
According to the latest Demographia International Housing Affordability survey, Australian capital cities ranked high in the unaffordable housing market list, with only Hong Kong and Vancouver significantly outpacing them in unaffordability.
These Australian markets remained unaffordable despite the house price reductions and relative price stagnation felt last year. This is particularly true in Sydney and in Melbourne, where homebuyers struggle to break into the housing market due to expensive housing prices and sluggish income growth.
In fact, despite the largest price reduction in Sydney in the last 35 years, house prices relative to incomes are more than double the rate in the early 1980s.
"In Sydney and Melbourne, median income households need at least three years’ more income to pay for the median priced house than in 2004, when the first Survey was published," the report said.
Sydney ranks third worst among capital cities overall, followed by Melbourne. The housing markets of Adelaide, Brisbane, and Perth were also tagged as severely unaffordable, placing 16th, 18th, and 24th, respectively.
Realestate.com.au chief economist Nerida Conisbee told News.com.au that the Demographia study goes to show that prices remain searing hot even with Australia's cooling market.
"As it turns out, house price falls in Sydney have pushed it to number three on the list instead of number two, which has been good for affordability. But our biggest capital cities are definitely in the top 25 least affordable cities in the world," she said. "The survey has been done for 15 years and Sydney always ranks right up there."
For Sydney to be deemed affordable, it would have to record a price decline of at least 75%. A price decline of that magnitude would probably require a mass exodus from the city.
Connisbee said compared to most parts of the western world, Australians are more obsessed with property, thanks to long-term interest rates and relatively accessible financing. Furthermore, Australia's tax system enables Australians to benefit from investing in housing.
"When you look at the US, people are investing in housing now, but it took 10 years after the GFC for prices to get back to where they were. But in Australia, housing is seen as a good place to put money in, because periods of downturn tend to be short-lived and minor," she said.
But everything seems to be hanging on a thread now with the upcoming federal elections. Labor's plans to change negative gearing rules might steer the housing market wheel in a different direction for both buyers and investors.